Private equity is a type of investment partnerships that buy and manage companies prior to selling them. As per Scott Tominaga, private equity firms tend to operate these investment funds on behalf of accredited or institutional investors. Provide equity funds might acquire private or even public companies in their entirety, or opt to invest in such buyouts as part of a consortium. They, however, generally do not hold stake in a company that stays listed on a stock exchange.
Scott Tominaga underlines a few strategies for investing in private equity
Private equity is generally grouped with hedge funds and venture capital as an alternative investment. Investors in such an asset class are ideally required to commit a good amount of capital for multiple years. Hence, access to private equity investments is typically limited to institutions and individuals with high net worth. As opposed to venture capital, the majority of private equity firms and funds tend to invest in mature companies instead of startups. They manage the portfolio companies with the goal of increasing their worth or to extract value prior to exiting the investment down the line. The private equity industry has grown rapidly over the last two decades, amidst increased allocations to alternative investments.
Here are a few key strategies to follow when planning to invest in private equity:
- Develop a comprehensive financial plan: Prior to making any kind of investment decision, it is important to have a well-defined financial plan in place that aligns with one’s personal financial goals. The plan must include expenses, cash flow, and budget management, as all of these factors significantly contribute to achieving financial objectives.
- Create an investment policy statement: Interested investors need to prioritize the creation of an investment policy statement. This basically would be a written document that outlines the portfolio allocation, target returns, as well as rules for rebalancing. It shall be prudent to base the investment strategy on reasonable forecasted returns that is in the 6%-10% per year range. One must also steer clear of the temptation to pursue excessively high returns, as doing so may lead to taking on unnecessary risk.
- Focus on downside protection and liquidity: It is vital to prioritize downside protection and liquidity for retail investors managing their money. Doing so becomes particularly important in the current late-stage market environment. Even though it is important to take on calculated risks, one must also make sure that they can hold quality positions through market downturns. Investors should additionally try to avoid a situation where they are forced to sell assets at a discount due to owing short-term cash flow requirements.
- Seek professional advice: It would be a good idea to seek assistance from financial advisors or managers who are in a good position to provide valuable guidance and insights. The guidance of a knowledgeable and competent manager can provide investors with much-needed peace of mind.
In the opinion of Scott Tominaga, people interested in investing in private equity should try their best to stay informed and up-to-date about investment strategies and financial planning concepts. They can utilize resources like investor education newsletters and blogs to gain insights into diverse financial planning concepts and strategies.
